What you need to Know Before Investing
Trust Deed Investments: What You Should Know*
7 essential elements of Trust Deed Investments:
- Knowledge, experience and integrity of the Mortgage Loan Broker through whom the transaction is conducted
- Market value and equity in the property and the security of the loan
- Borrower’s financial standing and creditworthiness
- Escrow process involving the funding of the loan or the purchase of the notes
- Documents and instruments describing, evidencing, and securing the loan
- Loan servicing provisions, authority and compensation
- Recovering your investment when the borrower fails to pay
What is a promissory note?
Promissory notes are written promises to pay or repay certain amounts of money at a certain time, or in a certain number of installments. Investments are secured by a deed of trust recorded against the title of the borrower’s property.
Specified within the note:
- Amount of the loan (principal)
- Interest rate (interest)
- Amount and frequency of payments (debt service)
- When the borrower must repay the principal (maturity date)
- Penalties imposed if borrower does not repay per agreement
In a deed of trust, the borrower (also known as the trustor) transfers the property, in trust, to an independent third party (trustee) who holds conditional title on behalf of the lender or note payer (also known as the beneficiary) for the purposes of:
- Reconveying the deed of trust once the borrower satisfies all obligations under the promissory note
- Selling the property if the borrower defaults (foreclosure)
*Source: California Department of Real Estate
For a full copy: Trust Deeds Investments: What You Should Know